David Roskoph

Brilliant article. Assuming the best of intentions - the Fed is trying to support a system fundamentally unsustainable. The credit bubbles have moved from the riskiest hands (Internet B) to the ostensibly least risky hand of the Fed in this colossal and desperate Treasury B.

Ben's hoary twist remands interest back to the Treasury and smacks of outright desperation in a failing Republic. The Fed can't support the perpetual deficits with make-believe prosperity because there is a debit on the ledger that must be repaid. Sadly, only pure Treasury Dept fiat will resolve the impossible deficit by monetizing the entitlement-driven debt. When everyone realizes the Fed is not a solvent third-party - the game is over for the west.

Central Bankers Continue To Control Markets; Time To Audit The Fed [View article]

Respectfully Thomas,

The Fed has been bankrupt for decades. Greenspan targeted equities' as the impetus for calm in the late 90's. Since then, it has simply been a game of shooting up monetary steroids to pretend we could actually afford LBJ's redistribution legacy.

Hilariously, the world pretends they're solvent and a third-party to the US economy. If word leaks out they're insolvent and an intimate part, the king will be naked and his shame will embarrass all western economies.

We know that the numbers don't add up. It is simply a matter of how they will be reconciled; abruptly in public shame or slowly with a less public retraction of the glutenous social net.

The New Stock Market: Obscenely Volatile, Perfectly Inefficient And It Only Gets Worse [View article]

Nathaniel,

Brilliant article! What exacerbates a now predatory system that replaces a once bona-fide marketplace are "regulatory agencies" who condone every new mechanism to destabilize markets and allow them to be pulled and sustained in an artificial price range. Why call it investing? It is much closer to theft.

How's about this - the fewer sheep investing, the more tumultuous the extremes? So the Fed targets markets with increasing ferocity over the past 15 years and they become the biggest factor. The managers know how the wheels should turn but without sheep, who's to fleece? Each other. Nasdaq at 5k driven by wolves and sheep slaughtered. Dow at 6,000 driven by wolves and sheep slaughtered. Bonds at 1.4% driven by wolves - working now with misguided Fed - sheep slaughtered?

Stock Market And Economy Heading Higher Whether We Like It Or Not [View article]

Hipno, there was no logical tipping point. We are in an environment of near chaos with interest rates portending a depression while monetary inflation is screaming. Anything could "logically" happen and so many things will.

If inflation wins, and it must, the economic recovery is just starting but the potential for illogical volatility will remain until the Fed quits it's control of the long-end maturities.

An excellent, excellent article. As you state, we are in an extraordinary time and I pose the question of why? Do you really believe with stated inflation at 3.6%, credit downgrades and gold screaming inflation (or chaos) that bonds are there as a function of normal market action? I submit that we are in a manufactured chaos. Few retail sheep remain and thus the fishbowl is now full of sharks, some much, much bigger than the rest. As this scenario make no logical sense, who but those who compelled it could profit?

I too have no clue as to how rates have descended to 60+ year lows under the present state of affairs other than being unintentionally forced there by QE2. Holding down the long -end with more fiat, only contracts credit and compels a deflation. This is the opposite of inflation - previously the only button on the Fed's control panel.

What Would Happen if the Fed Raised Rates Significantly Too Soon? [View article]

Erik,

The Fed has the sole role of last adult standing in the playground, even though abdicated by the little gnome Greenspan. Once rates hit zero the Fed became a monetary eunuch but reaffirmed its LASITP position through what I thought were inspired means (TALP & TARP) simply to slow down the deflation.

Ben has been emulating Jimmy Carter's transparency and it's a bad policy. I believe he is well intended but wrong. The deflation followed by axiomatic inflation question is, will he see that he has made a terrible mistake? Sadly, probably not.

Central banks have a 100% success rate of failure. All learned men trying to preserve their republics, all inflate their currency into oblivion. Our debts are intractable and this president hasn't the hutspa to do what is necessary - stop the madness LBJ doomed our country with!

What Would Happen if the Fed Raised Rates Significantly Too Soon? [View article]

Erik,

Absolutely! Ben has inadvertently cajoled the banks into near zombie status by guaranteeing them free money (deposits at 0%) and allowing them unlimited participation in Treasuries to make their income. I have long believed that QE2 is the EXACT OPPOSITE of what is needed now, if for no other reason than to reassert the illusion that there is at least on adult left in the playground.

Ben Shalom Bernanke is actually driving us precariously close to a real depression. Driving long-term rates down, to cover the inflation meter may have rung the death knell as it forces a new round of deflation. That will only trigger the hyper-inflationary fix that erases the middle class forever.

Isn't it a shell game? Sanitize a colossal fiat that immediately inflates equities and commodities in proportion to the expanded float, while claiming no iinflation. All our toys are worth more, but the currency they're denominated in is worth less, exactly the same proportion. Funny how that worked out but then again any other monetary inflation would rattle our creditors, who magically hold the subsidized, sanitized instrument - bonds.

It may work but if interest rates are "allowed" to reach their inflation adjusted parity, the depreciated bonds will bankrupt a grossly overleveraged Fed and we will re-live Carter's misbegotten economy, at best. Hey, at least Volker's still around take over.

Inflation, from the Saturn-V powered presses, will not be denied and neither will be glossed over while hiding the inflation-meter, bonds. Ben says "inflation, what inflation?"

Banks now have deposits but too little incentive to loan, under the present circumstances. They're still being wet-nursed by the Fed who is feeding them free deposits and Treasury backed returns.

I can't deny the virtue of QEI but it, like every other fiat is a buyers tax. The issuer gets a dollar's' value but each successive holder gets less until the dilution is complete and the buying power diminished.

Of course we all pay for each and every bailout, where else could the lost buying power come from?

Unfortunately the Fed hasn't the hutspa to put any pressure on banks to lend after the thrashing they gave them over the real estate debacle. Raising the FF rate would (in my humble opinion) go a long way to restoring a more reasonable flow of credit. The banks have gotten a protracted lending holiday and it continues.

My point is that absent pressure from the back, they'll need a carrot in the front. My guess is that they're at a critical juncture now and denying that carrot risks all that monetary inflation's lost buying power amidst stagnant growth. Thus Ronald Millhouse's ghost/ circa 1973.